Instructions For Schedule I (Form 1120-F) - 2011

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2011
Department of the Treasury
Internal Revenue Service
Instructions for Schedule I
(Form 1120-F)
Interest Expense Allocation Under Regulations Section 1.882-5
Exceptions from Filing
Canada (2009), Bulgaria (2009), and
Section references are to the Internal
Iceland (2009). If the foreign corporation
Revenue Code unless otherwise noted.
Schedule I
files its tax return using a treaty-based
method of the type provided in these
A foreign corporation is not required to file
General Instructions
treaties, see Treaty-based return
Schedule I if it (a) does not have a trade
positions below for reporting
or business within the United States, (b)
Purpose of Schedule
requirements.
has no worldwide interest expense for the
tax year to allocate under Regulations
Schedule I (Form 1120-F) is used to
Who Must File
section 1.882-5, or (c) conducts limited
report the amount of interest expense
activities in the United States for the tax
All foreign corporations that have interest
allocable to effectively connected income
year that it determines do not give rise to
expense allocable to ECI under section
(“ECI”) and the deductible amount of such
effectively connected income, or do not
882(c) must complete Schedule I to report
allocation for the tax year under section
give rise to a U.S. permanent
this allocation, regardless of whether the
882(c) and Regulations section 1.882-5.
establishment to which business profits
amount allocable under Regulations
The schedule also identifies the various
are attributable, and the corporation files
section 1.882-5 is deductible in the
elections the taxpayer uses, and
a protective income tax return under
current year, or is otherwise deferred or
discloses the basic calculations for the
Regulations section 1.882-4(a)(3)(vi).
permanently disallowed under other
year under Regulations sections
sections of the Internal Revenue Code
1.882-5(a)(7) and (d)(5), and under the
Protective elections on protective
(e.g., sections 163(e), 163(j), 263A,
branch profits tax rules of Regulations
returns. A corporation that files a
265(a), 267(a)(3)). The information
section 1.884-1(e)(3).
protective tax return on Form 1120-F
reported on Schedule I is also needed to
under Regulations section
Note. The tax election under
complete Form 1120-F, Section III (the
1.882-4(a)(3)(vi) may voluntarily file
Regulations section 1.884-1(e)(3) is not
determination of the branch-level interest
Schedule I with the protective return to
effectuated under the regulations by its
tax under section 884(f)). Interest
preserve timely elections under
identification on Schedule I (Form
expense that is treated as “branch
Regulations section 1.882-5(a)(7) if the
1120-F). See the requirements for the
interest” under Regulations section
return is filed by the original due date
time, place and manner for making the
1.884-4(b) may be subject to information
(including extensions) of the corporation’s
branch profits tax liability reduction
reporting under section 1461 or section
Form 1120-F. The protective elections are
election under Regulations section
6049 and potential withholding under
not effective if filed during the additional
1.884-1(e)(3).
sections 1441 and 1442. A foreign
extended period described under
Under Regulations section 1.882-5,
corporation that is a reporting corporation
Regulations section 1.882-4(a)(3). The
the amount of interest expense of a
and required to file Form 1120-F must
foreign corporation need only complete
foreign corporation that is allocable under
complete Schedule I and attach it to Form
the relevant portions of Schedule I that
section 882(c) to income which is
1120-F.
identify its right to use the following
effectively connected (or treated as
elections:
effectively connected) with the conduct of
Reporting corporation. A reporting
The Adjusted U.S.-Booked Liability
a trade or business within the United
corporation is any foreign corporation that
method (“AUSBL”) or Separate Currency
States is the sum of the interest expense
is engaged in a trade or business or
Pools (“SCP”) method (item B check
allocable by the foreign corporation under
treated as engaged in a trade or business
boxes);
the three-step process set forth in
within the United States directly or
The adjusted basis or fair market value
Regulations sections 1.882-5(b), (c), and
indirectly at any time during the tax year.
method for valuing its average assets in
(d), or (e) and the directly allocated
Steps 1 and 2 of the computation (line 1
interest expense determined under
Treaty-based return positions. If the
check boxes);
Regulations section 1.882-5(a)(1)(ii). The
corporation determines its interest
The actual or fixed ratio in Step 2 (line
interest allocation rules of Regulations
expense attributable to its business profits
6 check boxes);
section 1.882-5 are the exclusive rules for
of a U.S. permanent establishment
The published 30-day LIBOR election
allocating interest expense under section
pursuant to the express provisions and
for banks under the AUSBL method in
882(c) to effectively connected income
accompanying documents of an
Step 3 (line 10 check box); and
and for attributing interest expense to
applicable treaty instead of under
The de minimis foreign currency
business profits of a U.S. permanent
Regulations section 1.882-5, then
election under the Separate Currency
establishment under all income tax
Schedule I still must be completed
Pools method in Step 3 (line 16b check
treaties other than treaties that expressly
applying the rules of Regulations section
box).
permit attribution of business profits to a
1.882-5 and attached to Form 1120-F.
U.S. permanent establishment under
The corporation is also required to
The corporation need only identify the
application of the OECD Transfer Pricing
complete and attach Form 8833,
protective election in the first year it is
Guidelines, by analogy. For examples of
Treaty-Based Return Position Disclosure.
required to be made under Regulations
treaties that expressly provide for such
section 1.882-5(a)(7) or in any year a
Note. See Purpose of Schedule above
attribution, see Article 7 (Business Profits)
taxpayer is eligible to adopt or change an
for examples of treaties that expressly
and the accompanying Exchange of
election and chooses to do so for that
permit interest expense to be determined
Notes of the U.S. income tax treaties with
year. For example, an election to use the
under rules other than Regulations
the United Kingdom (2004), Japan
adjusted U.S.-booked liability method or
section 1.882-5.
(2005), Germany (2008), Belgium (2008),
the separate currency pools method is an
Aug 11, 2011
Cat. No. 50606A

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